what to do if the deposit doesn't cover unpaid rent

Security deposits are collected as part of the requirements when renting. They can go as high as two or three times the amount of monthly rent. Charging a security deposit is good practice in case of losses on your part. It helps to have a security deposit when a tenant has caused plenty of property damages, and it also covers for unpaid rent.

Some tenants break their lease early. Worse, some just leave and disappear without a trace. What happens then, when landlords find themselves with lesser returns resulting from the unpaid rent? What if the unpaid rent is more than the security deposit collected at the start of the tenancy?

Your Options

Although the prior questions may paint a bleak picture for a landlord, there are still several steps one can take. For unpaid rent, as a landlord, you can choose what to do from the following:

1. Talk to your tenant.

If you cannot physically reach a tenant, you may send a letter. In it, clearly state the reason why you’re only going to partially refund or not refund the entire security deposit. Be sure to send the letter within the proper time frame stipulated by the law.

The letter should be attached with a list that details the amount that the tenant owes you. Include the deductions for any property damage the tenant has also incurred throughout his stay at the rental unit.

send letter to tenant about all amounts they owe you

It’s best if you state the specific repair/maintenance and how much you’ve spent on it. You can mention, for example, the cleaning cost, broken window expense and the cost of replacing a torn wallpaper or damaged door lock. This is more understandable than just writing the total figure without specifics.

2. Issue a demand letter.

Next, if you still need an additional payment due to unpaid rent, you can send a demand letter to the tenant. It should specify the date of the payment and your contact number so the tenant can refer back to you.

It’s helpful to keep your language simple and the tone of the letter understanding. Problems may make it difficult for the tenant to pay right away. You may need to establish payment options, so it’s best to keep the communication channels open. You might even need to arrange a face-to-face meeting for this to work out.

3. Head to small claims court.

If the tenant does not respond to any form of contact, then you must consider going to a small claims court. This can be an effective way to collect the amount the tenant owes you for unpaid rent. This legal method is more extensive and can give you an edge if you can present solid proof.

For several reasons, heading to a small claims court does not guarantee that the tenant will pay you. Here are possible reasons that the payment may not happen:

  • It takes some time to organize your schedule and paperwork to present before the court. This is tough when your rental property is located in another state.

if tenant does not respond to contact, head to small claims court

  • The tenant may not have extra financial resources to pay. As much as you want to collect, if a tenant is broke, you can’t force the payment.
  • Concrete proof is necessary when going to court. If you have inadequate evidence, then your filing would be moot.
  • You might be facing a lawsuit filed by your tenant. If you’re guilty of unfair practices in your rental unit, then the tenant might win his case.

4. Hire a collection agency.

If you’re short on time, then you might consider engaging the services of a collection agency. The agency pursues the payment in exchange for a fixed fee. The collection company may also opt to acquire a percentage of the payment obtained from the tenant.

Collection agencies can be more effective, as they have the resources and methods to accomplish the rent recovery. Make sure to hire a reputable one to ensure that you’ll always be legally compliant.

Ways to Prevent Unpaid Rent

As we know that prevention is better than a cure, it’s best to avoid the scenario of dealing with unpaid rent. There are 2 strategies you can implement to reduce this future dilemma.

1. Screening tenants.

Before accepting a tenant, conduct a meticulous background check. Verify a tenant’s financial resources through their employment, credit score, bankruptcy record or previous eviction record. This may require some time, but it’s worth it to cut back against possible losses.

screen tenants to prevent payment issues

To avoid being subjected to unpaid rent, you can ask the tenant to submit proof of income along with bank statements. You can also call up references, like a previous landlord, and ask for more information. This way, you can rely on the tenant’s capacity to meet the monthly rent on time.

2. Sending an eviction notice.

Be alert when a tenant has still not paid the monthly rent on the due date or past the grace period. Although circumstances may occur during which a tenant may experience difficulty paying rent, be firm when enforcing the rental payment policy.

Communicate by giving the tenant a reminder, then send a notice. If the tenant does not heed the ‘pay or quit’ notice, you can proceed with the eviction process. Waiting for longer can result in detrimental effects. When you decide to send the warning after a tenant has skipped the monthly rent obligation several times, you suffer a tremendous loss.

Bottom Line

As a landlord, you do have multiple options regarding chasing after unpaid rent. You can communicate and send a demand letter. You can also use other modes of collecting, such as attending small claims court and hiring a collection agency.

However, if you want to avoid the hassle, it’s advisable to improve your tenant screening protocol. Additionally, sending notices once a problem on rental payment rears its head will minimize future losses. Never forget that your rent payment is the lifeblood of your business.

If you require property management services and extensive knowledge of rental laws, contact Haas Properties.